Government & Legal Update

Advocacy Update: 6th Circuit Explains the "Hard Reality" of Insurance Contracts, COVID Claims

A week before this magazine went to print, the U.S. Court of Appeals for the 6th Circuit (with jurisdiction over federal district courts in Michigan, Ohio, Kentucky, and Tennessee) became the third federal circuit court of appeals to rule in favor of insurers on a question whether lost income attributable to the pandemic and/or subsequent government shut-down orders was covered under an “all risk” commercial policy. In deciding Santo’s Italian Café v. Acuity Insurance Co., the 6th Circuit joined the 3rd and 8th circuits in ruling for insurers on the merits in similar cases.

Plaintiff Santo’s operated an Italian restaurant in Medina, Ohio and, like most in the hospitality industry, the pandemic hit its bottom line particularly hard. In March 2020, Ohio Governor Mike DeWine declared a state of emergency due to COVID-19, and the Ohio Department of Health quickly followed with an order prohibiting in-person dining services across the state. As a result, Santo’s suffered significant revenue losses and filed a claim with Acuity, seeking recovery under its commercial property policy for losses incurred throughout the duration of the “shut down” order.

Acuity denied coverage and Santo’s filed suit in Ohio state court. Acuity removed the case to federal court (diversity jurisdiction) and filed a motion to dismiss. The federal district court granted Acuity’s motion, and Santo’s appealed.

The 6th Circuit Court of Appeals affirmed the ruling for Acuity, holding that the policy, which included business losses “caused by direct physical loss of or damage to property,” did not cover loss of use due to a government order. In ruling against the restaurant, Chief Circuit Judge Jeffrey Sutton sympathized with the plight of America’s hospitality industry, but acknowledged a “hard reality about insurance,” summarizing the tough lesson for many insureds (and politicians):

“[Insurance] is not a general safety net for all dangers. If risk is not having money when you need it, insurance is one answer to perilous events that could prompt a sudden drop in revenue. Fair pricing of insurance turns on correctly accounting for the likelihood of the occurrence of each defined peril and the cost of covering it. Efforts to push coverage beyond its terms creates a mismatch, an insurance product that covers something no one paid for and, worse, runs the risk of leaving insufficient funds to pay for perils that insureds did pay for. That is why courts must honor the coverage the parties did – and did not – provide for in their written contracts of insurance.

Although persuasive authority in Tennessee, the decision is not binding in Tennessee as the interpretation of insurance contracts is a matter of state law. The Covid Coverage Litigation Tracker, a project of University of Pennsylvania Carey Law School, 195 federal appeals are currently pending in similar cases, including 16 in the 6th Circuit. Notably, none of the pending 6th Circuit appeals originated in a district court in Tennessee.

Lee Lands $5.6B Ford Electric Plant, Requiring Special Session

Tennessee is positioned to play a major role in Ford Motor Company’s big bet on an electric future, landing a commitment from the Detroit auto giant for a new electric vehicle and battery manufacturing plant officials have dubbed “Blue Oval City” to be located in Haywood County. On September 27, officials gathered in Memphis for the announcement, and Governor Bill Lee signaled his intent to call a special session for the General Assembly to approve a $500 million incentive package to finalize the deal. It’s a big win for Lee and West Tennessee. Lee said he expects the legislature to approve the measure. At 3,600 acres, the new Ford campus is exactly “what the doctor ordered” for the Memphis Regional Megasite, where it will span almost the entire development. State officials have tried for years, and invested considerable resources, to recruit a blue-chip manufacturer to anchor the West Tennessee industrial development, striking out at least 18 times according to a recent report commissioned by the Lee administration.

Ford officials said the new project will create approximately 6,000 jobs. Coupled with two new electric battery plants to be located in Kentucky, Ford’s total investment in domestic electric auto is $11 billion and the largest manufacturing investment in the company’s history.

Ford joins Nissan, General Motors, and Volkswagen on Tennessee’s roster of auto manufacturers. According to Lee, Tennessee and Indiana are the only states where four auto companies produce vehicles.

A depiction of the 2022 Ford F150 Lightning electric truck image courtesy and copyright Ford

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About the Author

Trey Moore is the Government & Legal Consultant for Insurors. Moore operates Trey Moore Consulting in Nashville and was formerly senior public policy counsel for Bass, Berry & Sims. Prior to that role, he had nine years of experience in government relations with Acadia Healthcare, BlueCross BlueShield of Tennessee and others He is a native of Gallatin and a graduate of Sewanee and Nashville School of Law. u

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Association Update

Insurors Members Named Among 2021 "Best Places to Work"

Insurors members Lipscomb & Pitts - a Higginbotham Company, Reliance Partners, and White & Associates were among the companies named in the Business Insurance "Best Places to Work 2021" list. The agencies all received glowing remarks for their agency cultures and environments built to help employees grow and succeed.

Keystone Names RSS "Thoroughbreds"

Keystone Insurers Group recently announced the 2020 Thoroughbred Award winners, including five Insurors members from RSS Insurance in Chattanooga. The award recognizes outstanding individual P&C and Employee Benefits production, and included Kyle Stephens of RSS at the Thoroughbred level as well as David Allen, Evan Collins, Trey Powell, and Keith Guest at the Century Level of production.

CIA Named Rough Notes Agency of the Month

Brentwood-based Commercial Insurance Associates (CIA) was recently named as the "Agency of the Month" by Rough Notes magazine. The article focused on the strong agency culture and the exceptional growth they have built on since their founding in 2002.

Porch Raises Money for Flood Victims

After the city of Waverly was ravaged by floodwaters in August, many residents and businesses were left with major destruction. Even worse, at least 20 people lost their lives. To help support the community, Insurors Board member Taylor Porch of Porch-Stribling-Webb Insurance put together a fundraiser with special guest entertainers Jake Owen and Drew Holcomb. The event has raised almost $200,000 and some donations are still coming in!

Mployer Advisor Names Multiple Members as "Top Brokers"

Mployer Advisor, a leading independent platform for employers to research, review and evaluate insurance brokers, has announced the recipients of its inaugural “Top Employee Benefits Consultant Awards” for 2021. Among the Tennessee winners were Insurors members Barnes Insurance Agency of Pigeon Forge/Sevierville, Brown & Brown of Tennessee, Gallagher Insurance, HUB International, and Lipscomb & Pitts Insurance - a Higginbotham Company - of Memphis.

Koontz Recognized by CIC Society

Dennis Koontz, CIC of Southpoint Risk in Knoxville was recently recognized for professional leadership and advanced knowledge by the Society of Certified Insurance Counselors. Dennis was awarded a certificate of achievement recognizing more than 40 years of successfully maintaining the Certified Insurance Counselor (CIC) designation.

The CIC program is a nationally recognized and highly respected insurance professional designation.

White & Associates Rewards Employee Wellness

White & Associates Insurance recently announced it has awarded $100,000 in employee wellness rewards. Established in 2015, the White & Associates (W&A) wellness program has grown into a large part of company culture and boasts a 94% staff participation rate.

The program started small, with points logged for exercise, water intake and obtaining an annual wellness exam. Within the first year, W&A built a website internally to keep track of employee points. Each year, new options are added including challenges like no sweets for a month, screen-free nights and carbonation elimination for 30 days. Employee points equate to cash and paid time off each month. In 2020, the average cash earned per employee equaled $356 and 52 days off were rewarded.

Gallagher Joins Nashville Yards as Partner

Gallagher has entered into a strategic agreement with Southwest Value Partners (SWVP) and AEG, joint venture partners and co-developers of Nashville Yards’ entertainment district and music venue, to become the next Founding Partner of the 18-acre Nashville Yards. The broker will serve exclusive insurance brokerage, benefits consulting and risk management partner of the new space. u